Retail and the supply chain need to start with the consumer

The pandemic has magnified the need for retail and supply chain transformation.

With every crisis comes opportunity – the opportunity to reset, revisit, reimagine new ways of working. A crisis can shine a light on a business’s weaknesses. This has never been more true than for the apparel industry.

Retail sales in clothing stores declined 28.5% in 2020; McKinsey translated the sales decline to an industry-wide loss of profits of 93% during the year. At least a dozen fashion retailers filed for bankruptcy protection in 2020, including major brands like Neiman Marcus, Brooks Brothers, Lord & Taylor, and Ascena, Ann Taylor and Lane Bryant’s parent company.

The last 12 months underscored the retail industry’s need to change – the pre-pandemic ways don’t work anymore. It’s particularly true when it comes to inventory management, procurement, and product design. Excess inventory has always been a problem for retailers, but the pandemic magnified the problem. McKinsey estimates that between $168 billion to $192 billion of inventory, built pre-pandemic, are sitting in warehouses and stores. Others who placed orders for the holiday season a few months into the pandemic projected too conservatively, resulting in lower sales.

But could digitalization have helped? Technology can’t predict pandemics and other natural disasters, but the right solutions built with a complete understanding of the workings of the entire supply chain beginning with product design and creation could have minimized the pandemic’s impact on retail.

A different approach to supply chain and retail digitalization

The global supply chain is complex. Product development, customer service, and manufacturing now occur in multiple countries, even for small companies, with each department and sometimes location operating in silos. Many of the technologies that are deployed today were designed to automate and create efficiencies in the current processes, where possible. Globalization added a layer of complexity. Distance, different systems, and cultural differences and the resulting mindsets made information sharing among siloed departments even more challenging.

Even the companies who are committed to supply chain digitalization have been slow to adopt; exciting efficiency gains in one location don’t seem to scale to others. Decades-old technologies don’t work in a global supply chain. Systems don’t talk to each other, so even if information-sharing is embraced as a corporate ethos, sharing is cumbersome and inefficient. Today’s technologies are much more sophisticated and powerful. Implemented with the processes of the global supply chain in mind and with practical rather than theoretical knowledge, technology solutions, once properly applied, can make real-time information sharing possible across departments and continents.

Inventory planning and ordering have always involved a level of guesswork based on market trends and past performance. Even with just-in-time manufacturing, predicting what consumers will buy involves some crystal ball guessing. The Internet, particularly social media, has made customers much more fickle. Today’s trends can be geographical, demographical, and shorter-lived – creating nightmare situations for executives. Even the most brilliant analysts and forecasters do better with data, especially customer buying patterns and which trends are showing staying power. Amazon’s growth can be attributed in large part to its ability to predict what consumers want, resulting in better decisions that reduce cost and improve performance.

It took less than 25 years for Amazon to become the #1 retailer in the world. Its investments in technology are legendary. Without access to billions required to implement similar technologies, how are smaller entities supposed to compete?

A non-linear, one-digital-step-at-a-time approach to the supply chain

The supply chain is defined by the steps required to manufacture and distribute a product. It’s linear, and most of the technology developments have occurred around logistics and warehousing. A digitized supply chain can benefit certain processes on the supply chain – the time it takes to deliver goods to consumers, for example. Bar codes, RFIDs, and other sensor data are now used to track the movement of products. Efficiencies have been groundbreaking. Companies now know exactly where their products are as they move from the manufacturing source all the way to the consumer; they also know when inventory isn’t moving.

There’s no shortage of data, but the tools to better understand that data are still not quite there. Is it possible for companies other than Amazon to get closer to their customers, to better predict what they want before they start the manufacturing process? Do these technologies exist, and are they affordable for others not named Amazon? Not only do the technologies exist, but when we take a non-linear view, there is an infinite number of ways that the supply chain can be made more efficient, provide greater insight – all the while getting closer to the customer. The consumer is key to the supply chain puzzle. Catering to the consumer is what Amazon is mastering. It’s where the focus on the supply chain needs to be.

The supply chain starts with the consumer

The consumer is always at the tail end of the supply chain. In fact, other than Li & Fung (and Amazon), few supply chain experts include the consumer in supply chain discussions. Others spend their energies on linear processes improvement, transparency, efficiency, and cost reduction.  In reality, as Amazon has discovered, it all starts with the consumer. Making products that consumers don’t want leads to unsold inventory, much of which eventually ends up in landfills, creating environmental issues.  This is our current focus at LFX – reinventing the entire product creation and commerce aspects with the end consumer in mind, before the products are manufactured; we think of it as the “first mile” in the supply chain.

Putting the consumer at the start of the supply chain is a different way of thinking, a different way of working. It won’t happen overnight, but if we begin with the consumer, inventory gluts, wastage, and crystal-ball forecasting can become things of the past.

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